The selling came as prices for industrial commodities fell on worries that China, the world's second-largest economy, is headed for a slowdown. Oil prices sank 2.3% and copper prices fell 2%.

Officials in China announced plans to allow gas prices to rise in an effort to compensate for higher oil prices. Meanwhile, home prices were down in major cities across China, according to government statistics.

"There has been a lot of chatter about slowing growth in China," said Ryan Larson, a senior equity trader at RBC Global Asset Management.

Investors were also rattled by reports that the chief executive of mining giant BHP Billiton said China's steel production is slowing, raising fears about the nation's property market.

On Capitol Hill, Treasury Secretary Tim Geithner told lawmakers that steps taken by European policy makers have helped alleviate tensions in the global financial markets, but said more needs to be done to revive the European economy.

Geithner reiterated that the United States remains opposed to providing additional resources for the International Monetary Fund.

Companies: After the market closed, Oracle (ORCL, Fortune 500) reported fiscal third quarter earnings of 62 cents a share, up from 54 cents a share a year earlier. Analysts had forecast earnings of 56 cents a share. Shares of the tech company were up 3% in extended trading.

Earlier, Jefferies Group (JEF)posted quarterly earnings of 33 cents per share on strong gains in its investment banking business, topping analyst estimates. The firm also beat on revenue.

Shares of Tiffany & Co (TIF) rose after the luxury jeweler reported sales of $1.2 billion -- in line with forecasts -- and issued an upbeat outlook.

Shares of Adobe Systems (ADBE) fell after the software maker issued earnings and guidance in line with expectations late Monday.